Islamic Micro Finance - PMN

8/8/2019 Islamic Micro Finance - PMN

1/25


2/25

An Introduction to

Islamic Microfinance

Muhammad Zubair MughalChief Executive Officer,

AlHuda: Centre of Islamic Banking andEconomics

[email protected]

www.alhudacibe.com
http://www.alhudacibe.com/http://www.alhudacibe.com/


3/25

Contents

What is Shariah Based Microfinance ?

Difference between Conventional & Islamic MF

Demand of Islamic Microfinance Worldwide

Global Landscape of Islamic Microfinance Pakistans Islamic Microfinance Updates

Islamic Microfinance Update

The Way Forward


4/25

Islam

Aqidah

(Faith & Belief)

Shariah

(Practices & Activities)

Akhlaq

(Morality & Ethics)

IBADAT

(Man to God Worship)

Muamalat

(Man to Man Activities)

Political Activities Economic Activities Social Activities

Banking & Financial Activities

Islam and Shariah


5/25

Fulfillment of Financial Needs

Own Capital Others Capital

Equity Financing Debt Financing

Murabahah IjarahSalam & Istisna etc

Musharakah Modarabahah Other Products

Human Financial Needs


6/25

Equity Financing Debt Financing

Uqud al-Ishtirak

(Contracts of Profit

Sharing )

Uqud al-Muawadhat

(Deferred Contracts of

Exchange)Al-Mudarabah

(Trustee Profit Sharing)

Al-Bai Bithaman (Mu)Ajil(Deferred Installment Sale)

Al-Musharakah (Joint

Venture Profit Sharing)

Bai al-Murabaha

(Cost Plus Profit Sale)

Others Al-Ijarah (Leasing)

Bai al-Salam (Commodity Sale)

Bai al-Istisna Sale on Order

External (Equity & Debt) Financing


7/25


8/25

Prohibition of Interest

Risk sharing

Social Development Mission

Prohibition of speculativebehaviour

Purity of contracts

Asset Based Financing

Shariah-approved activities.

Principle of Shariah BasedMicrofinance


9/25

And ALLAH has permitted trading and forbidden Riba

(Al Baqara 275)

Riba means any fixed or guaranteed interest payment on cash

advances or on deposits.

Islam encourages the earning of profits but forbids the chargingof interest

Prohibition of Riba ( Interest)


10/25

Conventional

MFI Client

money

money + money (interest)

Difference Between Islamic andConventional Microfinance


11/25

Islamic

IMFIS ClientGoods &

Services

money

Difference Between Islamic andConventional Microfinance


12/25

Modes of Islamic Microfinance


13/25

For Muslim majority country great need for Islamic MF exist and large

target segment is averse to the interest based microfinance products.

Islamic Microfinance emphasize ethical, moral & social factors to

promote equality and fairness for the good of the society. Risk Sharing, individual duties, property rights and purity of contracts

are part of Islamic Microfinance

Approximately 44% conventional microfinance clients worldwide reside

in Muslim countries (Source: MF Info Ex).

Asset-based can prevent diversion of funds for consumption

Need & Compatibility


14/25

Survey Surveyed Countries Respondentspreference(%)

CGAP 08 Jordan, Algeria, and Syria 20 - 40%

PlaNet Finance 07 West Bank and Gaza 35% - 60 %USAID 02 Jordan 24.9%

IFC/FINCA 06 Jordan 32%

Frankfurt School ofFin & Mgmt 06

Algeria 20.7%

IFC sponsored

Study

Yemen 40%

IFC 2007 Syria 43-46%

Bank Indonesia2000

Indonesia (East Java) 49%

A recently survey Conducted by AlHuda CIBE in Azad Kashmir exhibits99% demand (4 Districts)

Demand of Islamic Micro Finance


15/25

Institution Mode of Finance

7 Sudanese Islamic Banks Murabaha, mudaraba, musharaka, andsaving deposit[SIB Productive Families]

Islamic Cooperatives and RuralBanks of Indonesia

Cooperatives Members Musharaka(integrated with Zakat Fund)

Rural Banks Various modesIslami Bank Bangladesh, SocialInvestment Bank and AlFalah &Rescue

IBB Mostly bai muajjal

SIBL - Recourse generation - Cash Waqf andFinancing through various modes

Jordan Islamic Bank Musharaka and Mudaraba

UNCDF Yemen (HMFP) Murabahah and redeemable Mudarabah

Sanabel (12 Arab countries, 64MFIs meeting 80% of MFneeds)

Murabaha, mudaraba, musharaka

Amana Ikhtiar Malaysia and

Islamic Pawn Broking

AIM interest free loan

Al Rahnu short term interest free loanagainst collateral at market value

International Experience of IslamicMicrofinance


16/25

Pakistans Experiences

Institution Mode of Finance

Akhuwat AIM interest free loan

Qaraz-e-Hasna

CWCD Murabahah, Ijarah, Salam & Istisna

MicroTakaful

NRSP NWFP Murabahah

Mudarabah with BOK for funding Source

Khawendo Kor Murabahah but in limited scale

Islamic Relief Murabahah and Qarz-e-Hassan

KKCB Murabaha and MicroTakaful

Helping Hand

Muslim Aid

Naimat Islamic Microfinance

Farz Foundation

Takaful Pakistan Limited

Murabahah

Murabahah

Murabahah

Murabahah

MicroTakaful


17/25

Products for IMFIs


18/25

.United States: 4KivaHelping HandsMuslim Aid

Lariba

Germany:2- Muslim

Society

Switzerland:6UK:

- HSBC Amanah

- Muslim Aid- Islamic Relief- The Halal Mutual

Investment Company

Bahrain: 2

Malaysia: 112 - Pure Islamic Banks(Bank Islam, Bank

Muamalat)Rest - conventional

banks

UAE: 8- Dubai Islamic Bank- Abu Dhabi Islamic Bank- HSBC Amanah

Afghanistan: 4- FINCA , WOCCU

- CHF Ariana

Kuwait: 2- Kuwait Finance

House

Iran: 8

Egypt: 9- Alwatany Bank of Egypt- Egyptian Saudi Finance

Indonesia: 4

Sudan: 3

Pakistan: 11India: 3Bangladesh:9

Turkey: 7- Faisal Finance

Institution- Ihlas Finance

House

Yemen: 1

Islamic Microfinance InstitutionWorldwide


19/25

ArianaFin.Services

FINCAWOCCU

IMFIs in AfghanistanCHF

Akhuwat

Muslim

Aid

NR

SP

Khwe

ndoK

orCWCD

IMFIs in Pak

KKCB

Donors

Islamic Funds

PPAF

IDB MISFA

Kuwait

fund

Intl IMFI,s

AlBaraka AIM

UNCDF

FINCA

Islamic

Bankbd

BMTindones

ia

Islamic Microfinance Updates

Helping

Hands

IRTPL

Meez

anBank

Islami

cFun

d

UNDP

WorldBank

USAID


20/25

FINCA loans are based on Murabaha principles,they dont charge interest, but a Profit rate.

Providing Shariah-compliant loans has made itpossible for FINCA to expand in areas ofAfghanistan where other MFIs have been turnedaway for charging interest. According to 2007figures

Clients: 41,213

Village Banks: 5,529

Portfolio: $8,324,142

Average loan size: $329

Staff members: 387

Clients per CO: 187

FINCA - Experience in Afghanistan


21/25

Indicators Members of Investment and Finance Cooperatives

Unit of Measure Number

DataDi

saggregation

Regions North East GrandTotal

Provinces Balkh Jawzjan Aqcha Samangan

Baghlan Nangarhar

Total by Province 2,634 2,612 313 1,027 830 814 8,230

Gender

Male 2,267 2,070 305 961 756 737 7,096

Female 367 542 8 66 74 77 1,134

004 2005 WOCCU helped to establish two area-based open bond credit unions in the nf Afghanistan: Balkh and Jawzjan.In 2007 , WOCCU has established another five Investment Finance Cooperatives (IFCs)the East and South of the Country for Murabaha

WOCCU Experience in Afghanistan


22/25

A UNDP run programme in one of the poorest areasin Syria.

22 self local financial institutions have beenestablished consisting of 4,691 members

Each start up is self financed

When ever repayment is satisfactory, UNDPprovides an additional capital injection

Profit margin on Murabaha is 2.5%

A source of income

Repayment reached 100% by the end of the firstyear of operation (Brandsma, 2004)

JABAL AL HOSS, SYRIA:MURABAHA


23/25

Risk SharingInsure ShariahCompliances

Poverty Alleviation

Asset BasedFinancing

Micro TakafulFree from Interest

Financing

Joint ResponsibilitiesPurity of Contracts

IslamicMF

Islamic Microfinance Deal in


24/25

Functions and operations are basedon fully man made principles

Functions and operations are basedon Shariah principles

assured of pre-determined rate ofinterest

Promote risk-sharing betweenprovider of capital (investor) and userof funds (entrepreneurs)

Aim at maximising profit without anyrestrictions

Aim at maximising profit but subjectto Sharia'h restrictions

Creditor-Debtor relationship Partners, investor and traders, buyeror seller relationship

Based on money trading. Money is amedium of exchange and not acommodity

Encourage asset-based financingand based on commodity trading &Services

Conventional Micro Finance Islamic Micro Finance


25/25

It is almost risk free banking and

depositor has no risk of losing itsmoney because interest isguaranteed.

No right of profit if there is no risk

involved. The profit and loss sharingdepositor may lose money in case ofloss.

It can charge additional money in

case of defaulters

Islamic banks have no provision to

charge any extra money from thedefaulters

Conventional Micro Finance Islamic Micro Finance

Islamic Micro Finance - PMN

Documents

Transcript of Islamic Micro Finance - PMN